08 Oct 2019, Author:

More than 150,000 people in the UK borrow from guarantor loans lenders. Guarantor loans are a simple way for someone without a perfect credit score – or who has a low income – to safely borrow money. They are becoming increasingly popular because they provide options to borrowers who may not otherwise have them. Each guarantor loan requires someone to stand as a guarantor – but what does that actually mean and are guarantor loans a good idea from a guarantor’s perspective?


What is a guarantor on a loan?


Guarantor loans are very simple. A borrower makes an application for credit and that application is supported by a guarantor. For many people, getting a loan with a guarantor is the only way they will be able to borrow. The guarantor agrees to take on the repayment of the loan if the original borrower is not able to do it. This provides the lender with peace of mind and helps to overcome a situation where a borrower has a low credit score or there is another obstacle, such as low income.


Loan guarantor meaning


Being a loan guarantor means that you’re guaranteeing the obligations of the original borrower. So, if something happens and they can’t repay the loan you guarantee that you will make the repayments instead. This could mean being responsible for repaying the entire loan, as well as any interest that is due.


Who can be a guarantor for a loan?


The basic criteria for being a guarantor is that you must be over the age of 18. However, most lenders will also have a number of other requirements when it comes to defining who can be a guarantor for a loan. These may include:


  • A higher age limit – some lenders require guarantors to be at least 21 years old
  • Owning a property – a guarantor who is a homeowner is a more attractive option for a lender, as the property represents an asset that can be sold if the loan is not repaid
  • A specific level of income – lenders may ask that a guarantor is able to prove that they earn above a certain income threshold, to ensure that they will be able to make loan repayments if necessary
  • A good credit history – as a guarantor is providing back up for someone who may have issues with their own credit score it’s essential that the guarantor has a positive credit history themselves
  • UK based – most lenders won’t accept overseas guarantors
  • No close ties with the borrower – guarantors can be family or close friends. However, most lenders will avoid a guarantor who is the borrower’s spouse and will want to ensure that there are no close financial ties between borrower and guarantor, such as a shared bank account


How do people find a guarantor for a loan?


Many borrowers who feel like they might need some help getting approved for finance will ask family member, colleagues, friends or someone else who knows them well. So, you might be asked to be a guarantor by someone you know.


What to consider if you’re asked to be a guarantor


Getting a loan with a guarantor can be the difference between being approved for finance – or not – for many borrowers. However, even if you’ve been asked to be someone’s guarantor you’re not under any obligation to say yes. It’s very important to ensure that you understand what’s involved in being a guarantor and what the consequences could be for your own financial circumstances. These are some of the key things to consider:


  • Can you afford to make the repayments on the loan? If the borrower doesn’t keep up with the repayments, for whatever reason, instant guarantor loans lenders will ask you to take over. That could be one repayment or it could be the entire loan.
  • Will you still be financially comfortable if you have to take on the loan? It’s important to ensure that you’ll still be able to cover your own outgoings, such as rent and bills, if you have to start making the loan repayments too.
  • How well do you know the borrower? Many borrowers will be keen to find a guarantor for a loan so they can borrow but you should ask plenty of questions before you say yes. For example, can the borrower actually afford to borrow the loan? Are they the type of person who takes financial commitment seriously or are you likely to find yourself stuck with the loan because they just don’t bother to budget for repayments?
  • Do you understand the consequences for you? For example, if you don’t make the repayments on the loan then this could damage your credit score and the lender may be entitled to take you to court.


In terms of who can be a guarantor for a loan, in theory the answer is: anyone. However, the reality is that if you’re about to agree to be someone’s guarantor this is a decision that you need to spend some time thinking about first. If it’s not possible for you to find a guarantor and need a loan, we may be able to help as we provide loans with no guarantor needed.